Monday, November 17, 2014

Guilds

..the behavior of guilds can best be understood as being aimed at securing rents for guild members; guilds then transferred a share of these rents to political elites in return for granting and enforcing the legal privileges that enabled guilds to engage in rent extraction.

The paper nicely works through all the standard pro-guild and pro-regulation arguments. If you just replace "Guild" with "regulatory agency" it sounds pretty fresh.

Overall, the empirical findings suggest that impersonal exchange in medieval
and early modern Europe was sustained not by particularized arrangements such
as guild jurisdictions or interguild reprisals, but by generalized institutions: private
business practices backed up by public-order municipal or state institutions, which
were open to all traders, not just members of privileged guilds.

Did guilds improve quality, protecting the unwary consumer?

..guilds typically penalized their members’
quality violations too mildly to deter them (Homer 2002; Forbes 2002; Ogilvie 2005).
Customers often described guild quality controls as inadequate, and wholesale
merchants added their own quality inspections at point of purchase. As one German
guild inspector declared in 1660, “the cloth-sealing takes place very badly, and when
one says anything about it, one incurs great enmity” (as quoted in Ogilvie 2004a,
p. 295). Guild inspectors lacked the incentive to develop the skills and deploy the
effort necessary to detect low-quality work beyond superficial features (such as
size), which were readily apparent to wholesale merchants and consumers anyway
(Ogilvie 2005; Boldorf 2009)...

Guilds were certainly often active in regulating quality. But there is little empirical
support for the idea that they were efficient institutions for solving information
asymmetries between producers and consumers.

Uber stars vs. taxicab regulators, circa 1350.

Did guilds provide better training and certification?

While craft guilds often made apprenticeship and journeymanship compulsory—
at least on paper—the extent of actual training sheds bleak light on the
incentives of monopolistic professional associations with regard to human capital
investment. Contemporaries often complained that guilds failed to penalize
neglectful masters of apprentices, issued certificates to apprentices without examination,
or granted mastership without training or examination to masters’ relatives
and well-off youths who paid for “privileges” (La Force 1965; Kaplan 1981; Horn
2006).

Black-market “interlopers” who failed to obtain guild training—often,
as in the case of women and Jews, because guilds excluded them—were vigorously
opposed by guilds precisely because they had skills indistinguishable from those of
guild members and were willingly hired by customers (Wiesner 2000; Ogilvie 2003,
2004b, 2007a; Hafter 2007; van den Heuvel 2007).

A good reminder that modern union's behavior - quick exclusion of minorities for example -- goes back a long way.

Technology? Did guilds, as professional organizations, help to spread information about new techniques?

How did guilds affect technological innovation? The most visible way in which guilds interacted with new techniques was when, as often happened, they opposed them. Many guild members thought there was a limited lump of labor to go around. Innovations that squeezed more output from existing inputs would flood markets depress prices, and put guild masters out of work. As one fourteenth-century Catalan intellectual put it, “If a shoemaker comes along with new tools and makes 70 shoes in a day where others make 20 . . . that would be the ruin of 100 or 200 shoemakers.”

A lot of 20th century economists, commentators, politicians and "policy-makers" apparently believe the same thing.

Continuing,

Leiden distinguished itself from other cities by limiting or altogether
banning textile guilds, yet its flourishing industries were at the forefront
of technological innovation, introducing hundreds of new fabrics and a vast array
of innovative methods and devices between 1580 and 1797 (Ogilvie 2007a; Davids
2008; Lis and Soly 2008). Within England, the mechanical innovations of the
Industrial Revolution were introduced not in the guilded “borough” towns but in
fast-growing centers such as Birmingham, Manchester, Leeds, Halifax, Sheffield,
and Wolverhampton, which had no guilds (Clark and Slack 1976; Coleman 1977;
Pollard 1997).

Why did guilds die out? Early in the paper, Ogilvie mentions competition from the unguilded countryside and abroad. "Globalization" and competition do their work. In the last section,

... current scholarship suggests a complex of factors that created a new equilibrium in
which both the political authorities and the owners of industrial and commercial
businesses gradually discovered they could do better for themselves by departing
from the particularist path and beginning to use more generalized institutional
mechanisms. These factors included stronger representative institutions (parliaments)
that increasingly constrained how rulers could raise revenues and grant
privileges to special interest-groups; a more highly diversified urban system in which
towns did not act in concert, but rather competed and limited each other’s ability
to secure privileges from the public authorities; a more variegated social structure
including prosperous, articulate, and politically influential individuals who wanted
to practice trade and industry and objected to its being monopolized by members of
exclusive organizations; and governments that gradually made taxation more generalized
and developed markets for public borrowing, reducing the attractiveness
of short-term fiscal expedients such as selling privileges to special-interest groups
(de Vries 1976; Lindberg 2008, 2010; Mokyr 2009; Ogilvie 2011; Gelderblom 2013;
Ogilvie and Carus 2014).

A nice ending

The historical findings on guilds thus provide strong support for the view that institutions arise and survive for centuries not because they are efficient but because they serve the distributional interests of powerful groups.

The trade of competition-stifling regulation for political support continues. The question is how many centuries will it take now, and what similar political and economic forces will undermine it.

Update:
In this (Nov 18) morning's Cato News Summary,

According to a front-page analysis from Robert Pear of the New York Times (11/18, A1, Subscription Publication, 9.9M), titled “Health Law Turns Obama And Insurers Into Allies,” Obama “is depending more than ever on the insurance companies that five years ago he accused of padding profits and canceling coverage for the sick.” Pear says that since the passage of the Affordable Care Act, “the relationship between the Obama administration and insurers has evolved into a powerful, mutually beneficial partnership that has been a boon to the nation’s largest private health plans and led to a profitable surge in their Medicaid enrollment.”

6 comments:

One thing the guilds did provide was a power base against the existing leaders. They were involved in most popular uprisings in the Middle Ages, including the first Parliament in England with elected members.

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This is a blog of news, views, and commentary, from a humorous free-market point of view. After one too many rants at the dinner table, my kids called me "the grumpy economist," and hence this blog and its title.
In real life I'm a Senior Fellow of the Hoover Institution at Stanford. I was formerly a professor at the University of Chicago Booth School of Business. I'm also an adjunct scholar of the Cato Institute. I'm not really grumpy by the way!